BD Insider: Why African fintechs are dropping virtual cards

Jesutofunmi Adedoyin -

🍔Quick Bite: The virtual card business, once heralded as a game-changer for African fintechs, is now proving to be a challenging and often unsustainable endeavour. 

A growing number of fintechs across Africa are either scaling back or discontinuing their virtual card services altogether. Companies like Flutterwave, Rise, Carbon, and Union54 have had to reevaluate their strategies in the face of mounting operational costs, fluctuating exchange rates, and complex regulatory challenges. 

🧠 The Breakdown

Virtual cards have been a hot topic in the African fintech space for a while. They offered the promise of easier payments, more control, and flexibility for users—especially for those needing to access international services. 

But fast forward to today, and we’re seeing more fintechs scaling back or completely stopping their virtual card services. The latest fintech to join this growing list is Rise. 

Last week the Nigerian investment startup, announced it would discontinue its virtual card service. According to an email sent to users, the company cited “issues with providers, fluctuating exchange rates, and delays in issue resolution” as some of the main reasons behind the decision. Rise’s experience mirrors that of several other fintechs grappling with similar obstacles.

Earlier in the year, another digital bank, Carbon, also had to shut down its debit card services. The details weren’t clear at first, but Carbon’s co-founder Ngozi Dozie hinted in a post that the rising costs, particularly in U.S. dollars, made it tough to keep the service alive. He also hinted that this might have been a flawed move for many neobanks, asking, “Was this the right strategy for all of us, or was Carbon just unlucky?”

The struggles didn’t stop with Rise and Carbon. Union54, a Zambian fintech, had to halt its own virtual card services in 2022 due to massive losses caused by chargeback fraud. Running a virtual card business is proving more complex and expensive than many fintechs originally anticipated.

The hidden costs of offering virtual cards 

One of the biggest hurdles fintechs are facing is the volatile exchange rate. For companies offering virtual dollar cards, this fluctuation has driven up costs significantly.

“Card service providers like Visa and Mastercard have become more expensive, largely due to the exchange rate. For virtual dollar cards, providers are charging around ₦1,800 per dollar, making it costly,” an anonymous source told BD Insider. “For instance, if a company was paying ₦20 million per month last December, they might now be paying closer to ₦40 million just to maintain the service.”

This spike in expenses has led many fintechs to reconsider whether offering virtual cards is worth the financial burden. He went on to emphasise that the card business is “often a costly add-on to improve customer experience, but many have realised it’s not sustainable, especially for fintechs with a smaller user base.”

Beyond the exchange rate, infrastructure and third-party dependencies also play a significant role in the struggle. The lack of infrastructure for sustainable card programs compounds these challenges. 

“Fintechs relying on chains of intermediaries lose control over security and reliability, increasing third-party risks. Chargebacks are another issue, especially for cards without 3D Secure (3DS), which adds vital fraud protection,” said Sodruldeen Mustapha, CTO of Raenest, Nigerian fintech which serves over 500,000 freelancers and businesses. 

Source: Quartz

A shift towards local alternatives

As global providers like Visa and Mastercard become more expensive and difficult to manage, some African fintechs have begun exploring local alternatives. Verve, a domestic card provider, has emerged as a popular choice due to its lower costs and compatibility with domestic payments. Fintechs switching to Verve are able to sidestep the foreign exchange volatility that comes with relying on global card schemes.

“Some fintechs have switched to Verve because it's cheaper and domestic payments 100% work. We’ll likely see many companies dropping Visa and Mastercard,” said the anonymous source.

But while local options like Verve work well for domestic use, they’re not a silver bullet for all fintechs. Global players like banks or companies that cater to international customers—those using virtual dollar cards—are unlikely to make the switch to Verve anytime soon. 

“I doubt banks or virtual dollar card providers will drop these global card schemes, as the global reach and partnerships with Visa and Mastercard go beyond just local borders,” the source added.

Rethinking the Virtual Card Strategy

Many fintechs are learning that offering virtual cards might not be the right fit for their long-term strategy. The mounting costs, combined with the complex infrastructure needed to keep these services running smoothly, are leading fintechs to reconsider their priorities.

For companies like Raenest, which has also had to suspend its virtual card service in the past, the decision to remain in the card business is driven by a specific need. 

“We didn’t enter the card space because it was popular. We did it to serve a clear need among our users, who are vetted freelancers receiving payments from international platforms,” said Mustapha. “They require secure, dependable cards to manage their payments and pay for digital services and subscriptions.” 

This specificity, along with a strong partnership with a financial institution, enables Raenest to minimise intermediaries in its virtual card process, allowing it to provide more affordable virtual cards with lower suspension risks compared to competitors.

The growing number of fintechs exiting the card business suggests that offering virtual cards may not be the best path forward for all companies, particularly those without a large user base or robust infrastructure. The once-obvious strategy of offering virtual cards is no longer as clear-cut, and African fintechs are now recalibrating their priorities in pursuit of long-term growth.

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